Mindful Money’s Monday share-tips: Tesco & Johnson Matthey

2nd June 2014

The UK’s embattled supermarket sector will be under the spotlight once again on Wednesday when Tesco issues its first quarter trading statement.

With its shares off 17% over the past year and by 8% in just three months, Britain’s largest supermarket chain has been feeling the strain as a result of heavy competition from the so-called ‘hard discounters’ such as Aldi and Lidl.

The pace of change in the industry saw Tesco face a weaker and an increasingly competitive grocery market in the second half of 2013 and UK like-for-like sales and the pace of growth are likely to remain pressured asserts Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

He adds: “More positively, progress is in evidence in the group’s key strategic priorities – continued investment in the UK business, establishing multichannel leadership and a disciplined approach to international growth.

Prior to the announcement, analyst opinion currently points towards a ‘sell’ but Sheridan Admans, investment research manager at The Share Centre is calling the stock a ‘hold’.

He says: “As this price war rumbles on investors will be looking to see how Tesco is competing in areas where the discounters don’t have such a strong market presence – such as online, express outlets and financial services. Investors will also be looking for positive updates on Tesco’s expansion in China and India, and how the establishment of partnerships in the regions is progressing after a change in strategy.”

Thursday sees chemical group and platinum specialist Johnson Matthey report its full year results.

In the wake of a strong third quarter, driven in particular by a strong performance in the group’s Emission Control Technologies unit, this is expected to continue says Bowman, who notes the group’s chemicals businesses had performed ahead of expectations and steady demand was in evidence for refinery products within its oil and gas segment.

“Less positively, the expiry of the Anglo Platinum contract on 31 December 2013 impacted on sales in the Precious Metal Products division, while sales in its refinery operations were down as a result of weak precious metal prices. Ahead of the results, analyst opinion currently remains a ‘buy’,” says Bowman.

But while the group’s shares are up 24% over the past year, Admans notes that more recently they have been trending sideways, and notably they are only 1% ahead over six months, so far this year, which hints at an element of caution over the results.

Adnams, who lists the stock as a ‘hold’, says: “Investors will be reassured by Johnson Matthey’s last trading update as it highlighted a slight improvement in the outlook. Management have been confident about the group’s medium to long term outlook in regards to the Precious Metal Products Division, even though it has been under pressure recently due to lower precious metal prices.”